FHA Eases Rules on Collections Accounts

By Sari R. Updated on 9/25/2013

The FHA (Federal Housing Administration) is now permitting borrowers to supply a written letter explaining their disputed collections accounts.  This would be so that they can qualify for a government-backed mortgage.  In other words, FHA will ease up borrowing guidelines for people who have disputed collection accounts.

According to a new rule taking effect on April 1, 2012 the FHA will not qualify borrowers until such time that all outstanding collections accounts of more than $1,000 are either completely resolved or an agreed-upon payment plan is set up. Since many individuals who have a credit FICO score of 700 or less usually have such overhanging accounts, lenders were fearing that the would disqualify way too many homebuyers.  However, this latest news from FHA explains that a borrower can be exempted from the rule if the disputed collections account are results of a "life event," such as death, divorce, employment loss or even a a medical bill.

The borrower can write a letter explaining and documenting the disputed and collections accounts to qualify for the loan.  This new addition of the rule is similar to the HARP 2 Refinance Program which is designed by the government to make the real estate market gain its health back.